The legal nature of smart contracts in the system of contractual obligations: challenges for civil legislation

Abstract

Smart contracts, as automated software protocols grounded in blockchain technology, play a pivotal role in the digitization of contractual relationships, offering automation, transparency, and reduced transaction costs. However, their legal nature and integration into the framework of civil law contracts in Ukraine remain uncertain, giving rise to legal risks for the parties involved. The purpose of this article is to examine the legal nature of smart contracts within the system of contractual obligations under Ukrainian civil law, identify the legal and technological challenges associated with their application, and propose recommendations for adapting legislation to facilitate their effective use. Methods. The study employs methods of legal analysis, comparative legal research, and evaluation of the technological features of smart contracts, drawing on the provisions of the Civil Code of Ukraine and international experience. Results. The research demonstrates that smart contracts meet the characteristics of a civil law contract as defined by Article 626 of the Civil Code of Ukraine, as they constitute an agreement between parties aimed at establishing, modifying, or terminating rights and obligations. However, their recognition is hindered by the lack of clear regulation in the Civil Code, particularly concerning the requirement for written form (Article 208), which is mandatory for certain transactions. The programmatic code of smart contracts does not fully align with the traditional concept of written form, creating ambiguity regarding their legal validity. Furthermore, the immutability of smart contracts once deployed on the blockchain conflicts with provisions on contract modification or termination (Article 651), complicating their adaptation to dynamic legal relationships. Additional risks stem from technological limitations, including vulnerability to blockchain platform attacks, coding errors, and the inability to verify legal facts due to the absence of integration with state registries, such as for real estate transactions. Challenges in judicial protection of parties’ rights arise from difficulties in establishing liability for technical failures (Article 614) and the lack of judicial precedent regarding smart contracts in Ukraine. International experience, particularly the European Union’s eIDAS Regulation, suggests that smart contracts can be recognized provided their creation and auditing are standardized. Conclusions. To ensure legal certainty and effective utilization of smart contracts in Ukraine, amendments to the Civil Code are necessary to recognize programmatic code as a valid contract form, establish security standards for coding, and integrate blockchain registries with state databases. These measures will enhance the protection of parties’ rights, increase transaction transparency, and foster the development of Ukraine’s digital economy.